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Insurance tax hike would fund housing

Some Democratic members of the Louisville Metro Council are reviving an effort to increase the insurance premium tax to generate revenue for the Affordable Housing Trust Fund after a letter from Attorney General Jack Conway indicated that avenue is legal.

Some Democratic members of the Louisville Metro Council are reviving an effort to increase the insurance premium tax by 1 percentage point to generate revenue for the Affordable Housing Trust Fund. Kentucky Attorney General Jack Conway recently indicated the additional revenue could be dedicated to the housing program.

Conway previously said there were legal issues with the council approving the tax to go to the trust fund, but re-evaluated his stance after his office was given new information about how state law applies to consolidated governments such as the merged Louisville-Jefferson County.

The Metro Council created the trust fund in 2008 as an avenue to direct public funds to assist with the housing shortage for low-income working families, those with disabilities, young families and veterans.

Democratic Councilwomen Tina Ward-Pugh and Attica Scott said they are looking to reintroduce the ordinance that would boost the insurance premium tax by 1 percentage point to 6 percent to fund the trust fund.

The typical homeowner’s insurance cost could increase by $7.60 annually and the average automobile insurance cost could increase by $7.52 with the proposed increase.

The increase would generate an estimated $10.15 million annually that could be used for new construction, rehabilitation, emergency repairs, down payment assistance, foreclosure intervention and other efforts to improve the supply of affordable housing.

Ward-Pugh and Scott are uncertain when any proposed changes would be reintroduced as they both leave office at the end of December.

Conway wrote in a September 2013 letter that a consolidated government did not have the authority to increase the insurance premium tax and dedicate future revenue to the trust fund. But in a May 30 letter to state Rep. Joni Jenkins, Conway indicated using the tax would be allowable “as long as that purpose is specified in the ordinance levying the tax.”

Jefferson County Attorney Mike O’Connell’s office advised the Metro Council in March 2013 that it could not commit revenue from an insurance-tax increase to the housing fund and indicated state law requires all tax revenue to be turned over to the Revenue Commission. The council would have to vote with each year’s budget to spend the money on housing, rather than authorize the spending once with the imposition of the tax increase, according to that opinion.

Ward-Pugh and Scott were pleased to see the latest opinion from Conway and are optimistic about the proposal’s fate.

“I’m thrilled that we have what we believe is the right opinion, the correct opinion,” said Ward-Pugh, who represents the 9th District. The letter “send(s) a signal where an attorney general would come down” if there is a legal fight.

However, Councilman Kelly Downard, R-16th District, said he has not heard any discussion about introducing a proposal in response to Conway’s letter.

“In my mind, they have a ways to go before they have a right to expect something like this — beyond the fact that it is a tax,” Downard said. “I think it probably does not have the legs it ought to have. I would not be for a new tax for an unproven organization.”

Downard said he does not believe his colleagues are ready to move forward.

The “whole world wants a guaranteed source of income,” Downard said, adding they could look for a dedicated income source for any number of programs and not just housing.

If there are Republican colleagues who are not supportive, Scott said, they want to talk to them and listen to their ideas for addressing the housing crisis.

“We have to come up with some sort of resolution,” said Scott, who represents the 1st District. “There is clearly a need for housing. We’ve got to do something.”

Increasing the insurance premium tax

Ward-Pugh believes there are as many as 12 votes in favor of the proposal on the 26-member council and is not certain whether some of the original co-sponsors will come back on as sponsors, but is ready to re-engage her council colleagues.

“The only reason they removed their sponsorship is there was no guarantee that fund or tax would go to the trust fund,” Ward-Pugh said of some early sponsors. “I am hopeful that since that issue has been resolved they will come back on as co-sponsors.”

Ward-Pugh also pointed out that the council just approved an LG&E fee increase, so that could have an effect on “how committed we are to creating another fee.”

The good news for taxpayers, she said, is the insurance increase would not go into effect until next July and it would be 2016 before the money was received.

Chris Poynter, spokesman for Mayor Greg Fischer, said the administration is watching the council to see what happens.

The trust fund — a private, nonprofit agency overseen by a mayor-appointed board — is intended to provide loans and grants to private builders and nonprofit groups to increase the stock of affordable housing.

While the trust fund has received some public funding and private donations, no revenue source is dedicated to it.

The board of directors recommended the 1 percentage point increase in the insurance premium tax. That tax was the only source of revenue deemed to create the $10 million supporters thought was needed to adequately fund the trust fund without going to the General Assembly for approval.

The tax would be applied to casualty insurance, auto insurance, inland marine insurance, fire insurance, life insurance (based on the first year’s premiums), and health insurance for policyholders in the urban services district (former Louisville city limits), although there are exemptions for some health insurance policies, including individual policies and high-deductible plans.

Housing crisis

Ward-Pugh said while the increase might affect low-income residents more, “we believe there is community support to show that those very same people understand the value of it and they support it.”

She said they need to get houses “back in safe and decent order.”

Scott agrees the funding is needed to address the “homeless and housing crisis in our city,” including 12,000 homeless children in Jefferson County Public Schools.

Scott is optimistic the council can have a conversation about the ordinance and about how lawmakers can address the housing crisis.

Since the fall of 2013, money from the housing trust fund’s Revolving Loan Fund has been used to transform 10 vacant or abandoned houses into usable housing, and three more are expected to be transformed in November, according to the trust fund.

“Beginning in 2013, with $185,000 in funds, we have helped rehabilitate a total of 13 vacant/abandoned properties into decent, safe homes affordable for hardworking Louisville families,” trust fund executive director Rachel Hurst said in a release last month.

While 13 houses helps, Ward-Pugh said that number won’t make a significant impact to address blighted houses and related issues including crime, drugs, poverty and unemployment.

If they have a successful fund, Ward-Pugh said private donations will increase, as they have in other communities.

Sebastian Kitchen can be reached at (502) 582-4475. Follow him on Twitter at @writeonsk.

Housing and the tax increase

• 15 incorporated cities in Jefferson County already charge more than a 5 percent insurance premium tax rate and 10 of them would still be charging more than Louisville after the 1 percentage point increase.

• Every $1 million invested in affordable housing in Louisville creates as many as 84 units of affordable housing, supports 112 jobs, and generates more than $6.4 million in local revenue.

• 91,999 Louisville families cannot afford their rent or mortgage — the equivalent of filling the KFC Yum! Center to capacity more than four times.

• One in eight Jefferson County Public Schools students were homeless last year — about 10 percent of all school-age children in Louisville.